What Psychology And 'The Big Short' Tell Us Will Happen In The Prime London Residential Market
The prime Central London residential market is frozen, and property sales in the area have stagnated. That is often not because of any particular distress, but instead comes down to a deep psychological aversion people have to selling at below their preconceived idea of fair value, even when it is the "rational" thing to do.
To understand what is happening in the market and where it might go next, it is worth looking at the field of behavioural psychology via the lens of best-selling book and film "The Big Short".
According to data from LonRes, the London residential analysis firm, in the past year more London properties have been taken off the market after being put for sale than have actually been sold.
Transaction volumes have fallen by 11% in the first half of 2017, and are down by 37% compared to the first half of 2013. And when transaction volumes fall, prices follow — down 4% across London according to LonRes, and 11% for prime markets.
The average sale is occurring after 164 days, and those who give up typically do so after 161 days.
But buyers are still asking for sky-high prices. A year ago 21% of vendors were cutting asking prices by 10% or more to achieve a sale - now that figure is more than a third.
LonRes said this showed that while people were willing to accept price cuts, properties are still reaching the market with hugely overly optimistic asking prices.